Strong beat in Q3 brightens up Havells' prospects, revenue at all-time high

The recent surge in stock prices factors in key positives; await better entry point, advise analysts

Havells India hit a fresh high of Rs 1,155.7 per share on Friday, after the consumer durables maker beat analysts’ estimates by a mile for the December quarter (Q3). The stock ended the session marginally lower at Rs 1,122.65.

While demand was expected to be healthy thanks to festive season sales and a revival in footfall, top line growth came in far higher than estimates. Revenue was up a whopping 39 per cent year-on-year  (YoY) to an all-time high of Rs 3,165 crore in Q3, aided by strong growth across segments. This compares with consensus estimates of Rs 2,627 crore.

This growth, said the firm, came on the back of an expansion in its distribution network, with a focus on increasing penetration in smaller towns and rural regions, robust supply chain, and (market) gains from the unorganised sector.

Revenue for its core portfolio (excluding Lloyd) was up 35 per cent YoY, wherein consumer durables surged 46 per cent, switchgear 32 per cent, cables and wires 27 per cent, and lighting 28 per cent. Lloyd posted 70 per cent growth with margins turning positive.

Analysts at Motilal Oswal Securities note: “The supply chain disruption, coupled with high import dependence, has further supported market share gains from the unorganised sector.” They add that revenue in 9MFY21 comparable to the year-ago period, while net profit has risen 25 per cent YoY to Rs 737 crore.

With the March quarter (Q4) being seasonally strong, demand momentum is expected to sustain. “Our channel check suggests growth momentum has continued in January. Dealers are planning for double-digit growth in Q4, even as supply chain remains constrained,” said Himanshu Nayyar, analyst (institutional equities), YES Securities.

Although Havells took price hikes Q3 to mitigate input cost pressures, analysts estimated only modest growth in margins compared to the year-ago period. 

However, lower ad spends and overall cost optimisation more than made up for those risks, with Ebitda margin expanding over 400 bps in Q3. Subsequently, strong top line growth and operational performance saw net profit jump 70 per cent YoY to Rs 350 crore — also an all-time high — against estimates of Rs 251 crore.

“We have factored in 10 per cent revenue CAGR from FY19-23, with Ebitda and profit-after-tax CAGR of 16 per cent and 18 per cent, and Ebitda margin of 14 per cent,” said analysts at ICICI Securities. 

However, the surge in share price and premium valuation does not offer favourable risk-to-reward equations. Investors are advised to wait for a better entry point and accumulate on dips, say experts.